Facts

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Citizens' persistently large scale — it remains by far Florida's largest property insurer with 1.34 million policies, including 90,000 in Sarasota and Manatee Counties — is often attributed to a cap on price increases. But some believe it exposes a more fundamental problem with Florida's private property insurance market: Lack of confidence.

Efforts to shrink Citizens are bound to fail until insurance agents and homeowners have more faith in the many small start-up insurers that have popped up across Florida in recent years, critics say.

State regulators need to crack down on these companies to restore confidence in the market and “call a spade a spade, call a weak insurance company a weak insurance company,” said state Rep. Frank Artiles, R-Miami.

But Citizens board members and executives were more inclined to blame insurance agents Friday for shuttling too many customers into the company without properly shopping the policies around to private insurers.

Citizens CEO Barry Gilway — who had been pursuing a controversial plan to loan $350 million of the company's surplus to private insurers who take policies out of Citizens — abruptly reversed course this week, putting the loan program on hold until next year. Instead, Gilway said he plans to develop a computer system that forces agents to ensure every effort is made to place policies in the private market before going with Citizens.

“The current depopulation program simply is not working as effectively as originally envisioned,” Gilway told Citizens board members Friday.

Efforts to drive customers away by increasing rates, reducing coverage and stripping away hurricane mitigation discounts also appear to have had little impact.

Floridians will get another reminder of how fragile the state's private insurers are next year when insurance policies statewide are hit with a 1 percent increase to pay the claims of failed Tampa-based Homewise Insurance.

The average homeowner will pay an extra $20 next year to cover $142 million in unpaid claims resulting from the failure of Homewise in 2011.

Homewise also serves as a reminder that state-run Citizens is not the only insurer that triggers special taxes on insurance policies if it runs out of money to pay claims.

Private insurers also end up costing state residents when they fail, a fact that helped drive criticism of the controversial $350 million loan program.

Gilway said he is delaying moving forward with the loan program because of a lack of interest.

But critics said the plan was fundamentally flawed for another reason: Many of Florida's weak private insurers are in worse financial shape than Citizens, according to some analysts, so transferring policies could still leave state residents on the hook for big assessments if the private companies fail.

“All of Florida pays into” the guarantee fund for private insurers, said Artiles, the Miami legislator. “It's the safety net for all of these companies that have a high propensity and do go under due to a storm or mismanagement or whatever the case may be.”

The question of whether state officials are actually improving the overall health of Florida's property insurance market by transferring policies out of Citizens continues to dog not just the loan program but the entire effort to shrink the state-run company.

Gov. Rick Scott and many state leaders argue Citizens is underfunded and represents a huge financial risk to the state because it may not have enough money to pay claims after a hurricane, triggering assessments on insurance policies statewide.

Floridians are still paying a 1 percent assessment to cover losses Citizens suffered during the 2004-05 storm seasons.

But Citizens has been building reserves at a much faster pace than private insurers and keeps getting stronger, even as insurers like Homewise fail and trigger assessments.

The state's insurance guarantee fund has levied five assessments over the last seven years to pay claims when private insurers fail.

Independent analysts say many of the state's private insurers remain dangerously weak and are likely to fail in a major storm.

Gavin Magor, a senior financial analyst with Wiess Ratings of Jupiter, said in an email that his company “estimates that there would be a very strong likelihood of failures in the event a severe hurricane strikes Florida.”

Magor said transferring policies out of Citizens is not a magic bullet for improving Florida's insurance market. The biggest problem is that Florida's insurers are woefully undercapitalized with minimal reserves, he said. The companies buy large amounts of pricey reinsurance and have very small financial cushions, leaving them vulnerable to insolvency even when hurricanes stay away.

Florida has not been hit by a hurricane in seven years, an unprecedented stretch without a storm. Homewise got in to trouble not from wind and rain, but because the company was too exposed in sinkhole-prone areas.

Homewise is at least the eighth Florida property insurer to become insolvent since 2004, and at least the 11th when counting multiple insurers that were under one holding company separately. Other weak companies were purchased or merged before going broke, thereby avoiding liquidation.

Florida home insurers have failed in six of the last nine years.

That track record has made many homeowners and insurance agents leery of doing business with the small start up insurers. It also is one reason why 30 percent of Citizens customers who were approached this year to have their policy taken over by a private company refused.

Some insurance agents and homeowners continue to feel more comfortable with Citizens.

Customers “rely upon us to look out for their financial interests,” Sarasota insurance agent Rick Greene wrote in an email. “Along comes a company, sometimes with questionable reserves . . . Questions arise about who is the new company, and who is to pay for claims.”

Critics say efforts to shrink Citizens have not been accompanied by a similar push to restore confidence in the private insurance market.

Gilway argued Friday that the opposite is true: That Citizens actually went too far in trying to gain the public's confidence in the loan program and set the bar too high for companies to participate.

“We remained fairly rigid in our financial requirements,” Gilway said, adding that safeguards “while they benefited Citizens significantly, were considered to be very onerous from the perspective of” the private insurers.

<p>Despite aggressive efforts to kick people out of state-run Citizens Property Insurance in 2012, the company is closing the year down just 9 percent from a record-high number of customers.</p><p>Citizens' persistently large scale — it remains by far Florida's largest property insurer with 1.34 million policies, including 90,000 in Sarasota and Manatee Counties — is often attributed to a cap on price increases. But some believe it exposes a more fundamental problem with Florida's private property insurance market: Lack of confidence.</p><p>Efforts to shrink Citizens are bound to fail until insurance agents and homeowners have more faith in the many small start-up insurers that have popped up across Florida in recent years, critics say.</p><p>State regulators need to crack down on these companies to restore confidence in the market and “call a spade a spade, call a weak insurance company a weak insurance company,” said state Rep. Frank Artiles, R-Miami.</p><p>But Citizens board members and executives were more inclined to blame insurance agents Friday for shuttling too many customers into the company without properly shopping the policies around to private insurers.</p><p>Citizens CEO Barry Gilway — who had been pursuing a controversial plan to loan $350 million of the company's surplus to private insurers who take policies out of Citizens — abruptly reversed course this week, putting the loan program on hold until next year. Instead, Gilway said he plans to develop a computer system that forces agents to ensure every effort is made to place policies in the private market before going with Citizens.</p><p>“The current depopulation program simply is not working as effectively as originally envisioned,” Gilway told Citizens board members Friday.</p><p><A HREF="https://www.documentcloud.org/documents/540164-citizens-2012-depopulation-overview.html" target="_blank">More than 277,000 Citizens policies have been assumed by private insurers this year</a>, but the “take outs” have been offset by the large number of new customers that continue to pour into Citizens.</p><p>Efforts to drive customers away by increasing rates, reducing coverage and stripping away hurricane mitigation discounts also appear to have had little impact.</p><p>Floridians will get another reminder of how fragile the state's private insurers are next year when insurance policies statewide are hit with a 1 percent increase to pay the claims of failed Tampa-based Homewise Insurance.</p><p>The average homeowner will pay an extra $20 next year to cover $142 million in unpaid claims resulting from the failure of Homewise in 2011.</p><p>Homewise also serves as a reminder that state-run Citizens is not the only insurer that triggers special taxes on insurance policies if it runs out of money to pay claims.</p><p>Private insurers also end up costing state residents when they fail, a fact that helped drive criticism of the controversial $350 million loan program.</p><p>Gilway said he is delaying moving forward with the loan program because of a lack of interest.</p><p>But critics said the plan was fundamentally flawed for another reason: Many of Florida's weak private insurers are in worse financial shape than Citizens, according to some analysts, so transferring policies could still leave state residents on the hook for big assessments if the private companies fail.</p><p>“All of Florida pays into” the guarantee fund for private insurers, said Artiles, the Miami legislator. “It's the safety net for all of these companies that have a high propensity and do go under due to a storm or mismanagement or whatever the case may be.”</p><p>The question of whether state officials are actually improving the overall health of Florida's property insurance market by transferring policies out of Citizens continues to dog not just the loan program but the entire effort to shrink the state-run company.</p><p>Gov. Rick Scott and many state leaders argue Citizens is underfunded and represents a huge financial risk to the state because it may not have enough money to pay claims after a hurricane, triggering assessments on insurance policies statewide.</p><p>Floridians are still paying a 1 percent assessment to cover losses Citizens suffered during the 2004-05 storm seasons.</p><p>But Citizens has been building reserves at a much faster pace than private insurers and keeps getting stronger, even as insurers like Homewise fail and trigger assessments. </p><p>The state's insurance guarantee fund has levied five assessments over the last seven years to pay claims when private insurers fail.</p><p>Independent analysts say many of the state's private insurers remain dangerously weak and are likely to fail in a major storm.</p><p>Gavin Magor, a senior financial analyst with Wiess Ratings of Jupiter, said in an email that his company “estimates that there would be a very strong likelihood of failures in the event a severe hurricane strikes Florida.”</p><p>Magor said transferring policies out of Citizens is not a magic bullet for improving Florida's insurance market. The biggest problem is that Florida's insurers are woefully undercapitalized with minimal reserves, he said. The companies buy large amounts of pricey reinsurance and have very small financial cushions, leaving them vulnerable to insolvency even when hurricanes stay away.</p><p>Florida has not been hit by a hurricane in seven years, an unprecedented stretch without a storm. Homewise got in to trouble not from wind and rain, but because the company was too exposed in sinkhole-prone areas.</p><p>Homewise is at least the eighth Florida property insurer to become insolvent since 2004, and at least the 11th when counting multiple insurers that were under one holding company separately. Other weak companies were purchased or merged before going broke, thereby avoiding liquidation.</p><p>Florida home insurers have failed in six of the last nine years.</p><p>That track record has made many homeowners and insurance agents leery of doing business with the small start up insurers. It also is one reason why 30 percent of Citizens customers who were approached this year to have their policy taken over by a private company refused.</p><p>Some insurance agents and homeowners continue to feel more comfortable with Citizens.</p><p>Customers “rely upon us to look out for their financial interests,” Sarasota insurance agent Rick Greene wrote in an email. “Along comes a company, sometimes with questionable reserves . . . Questions arise about who is the new company, and who is to pay for claims.”</p><p>Critics say efforts to shrink Citizens have not been accompanied by a similar push to restore confidence in the private insurance market.</p><p>Gilway argued Friday that the opposite is true: That Citizens actually went too far in trying to gain the public's confidence in the loan program and set the bar too high for companies to participate.</p><p>“We remained fairly rigid in our financial requirements,” Gilway said, adding that safeguards “while they benefited Citizens significantly, were considered to be very onerous from the perspective of” the private insurers.</p>